a hundred dollar bills, look at you! look at you!

I think I ought to speak to a financial adviser.

“Professor,” you ask in a robust chorus. “Don’t you have a degree in economics from a prestigious university?” I do; thank you for reminding me. But that doesn’t make me qualified to invest wisely. I know I’ve used this metaphor in the past, but: asking an economist for stock tips is like asking a physicist to build a bridge. Engineers (the people who build bridges) need to know physics, but their education doesn’t end there. Similarly, I have my private theories about what the economy will look like in 2016, but that doesn’t tell me which funds to buy.

But I remain chary about just walking into the closest Ameriprise office, dumping my financial statements on the desk, and asking, “Whaddaya got?” I have little faith in the ability of advisers to build an investment plan to weather a crisis they never saw coming (or hurried along, depending on their employer). So I need someone I can trust.

The first step: knowing about myself. What do I know?

  • I have good saving habits. When I moved from my job at The Company to my job at Internet Inc., I got a pay raise of x%. Almost all of that x% goes into savings. I’m living at the same standard of living I did before – which is easy; I’m used to it – and banking whatever extra money I make.

  • I hate managing my investments. Burton Malkiel, in A Random Walk Down Wall Street, ranks categories of investments on a “sleeping scale,” in which instruments are ranked on a scale by how much sleep you’ll lose worrying over them. Bank accounts are “semicomatose,” money-market accounts are “long afternoon naps and sound night’s sleep” (though any editions published after 2008 might offer, ahem, a mild caveat), real estate is “tossing and turning, vivid dreams” and gold is “insomnia.” The farther down you go on the scale, the more you have to manage the investment.

    I have more important things to do with my time than log on to a website and track a portfolio every day, or crunch numbers on my homemade spreadsheets. I like my investments the way I like my rotisserie grills: something I can set and then walk away from.

  • I’m allergic to risk. I hate the thought of losing money. A decent rate of return would be nice, but right now I’d be happy with a vehicle that simply kept its value year over year. I wouldn’t invest at all, except the knowledge that my savings accounts and money-market accounts will lose value due to inflation spurs me on. Real losses have finally started to scare me more than nominal losses.

  • I have a 401(k) through my current job, a 401(k) from my old job, some stock in my old company, an IRA that I started when I was a teenager but have not touched since college, an online stock portfolio, a savings account and a checking account. I have zero debt and zero real assets (unless you count a car that needs minor bodywork and a new CV joint).

  • Goals: get to that mythical “three months of expenses” savings mark. Save up for various trips outside the country. Saving for retirement’s less of a priority – I’m not of the mindset that puts off the fun parts of life until age 65, and I spend a lot of my spare time pursuing a job that I can still do in my golden years. But I’m not going to stop saving for retirement.

Having examined my financial life, let’s see if it’s worth living.


first of all I want to thank my connect

I can’t give you investment advice, but I can tell you what things mean.

The Dow Jones Industrial Average closed at 8990.96 yesterday. The last time it fell that low (prior to this month, of course) was June 2003. If the DJI means anything as an economic barometer, it means that the housing bubble collapse has destroyed 5 years worth of wealth: every citizen of the world could have taken half a decade off and we’d be no worse. Of course, that’s not true, which leads me to wonder what’s the use of the DJI.

The Dow Jones Industrial Average – forgive me if you’ve heard this – is a price-weighted average of the stock prices of 30 of the largest industrial companies in the U.S. The companies which make up this list – including American Express, Exxon Mobil, McDonald’s and Verizon; excluding Chase Bank, British Petroleum, Starbucks or Sprint – are selected by Dow Jones & Company. Dow Jones & Company also publishes The Wall Street Journal, one of the most widely read business periodicals in the world.

What I’m getting at: the DJI is not an exhaustive list of American companies; service industries are highly underrepresented. It’s not even an exhaustive list of American industries. The DJI is a list of businesses picked by a company that happens to have a particularly loud bullhorn. It has been a successful list. But there’s more to America than industry.

Gold became a currency because it had more use in exchange than it did in manufacture: people started trading it more than they were making it into jewelry (see Neal Stephenson’s Quicksilver for more). Similarly, the DJI is used more as a barometer than as an investment tool. When people talk about “how the market is doing,” they mean the Dow. A substantial minority track the Nasdaq or the S&P 500 in addition to the Dow, but most people look at one number.

This bothers me because I don’t like people making panicked decisions based on the behavior of 30 companies, none of which they invest in.

I don’t agree with Dean Baker at the American Prospect on every thing, but I find him a better thinker than either Paul Krugman or Thomas Friedman. For years he’s been the voice crying out in the desert, declaiming reductionist investment thinking with a simple motto: the stock market is not the “home team.” A surge in the DJIA could come from any number of things – inflation, a burst of good news, rosy economic forecasts, mob mentality, etc. The changes of the Dow represent the instinctive guesses of several hundred traders – hardly an accurate representation of the market as a whole.

What with the current panic – and I don’t know how else to describe week-over-week 1000-point swings in the DJI – Baker’s been hitting this drum louder than ever. From September 30th:

On January 3, 2001 the NASDAQ jumped more than 14 percent. What was the basis of this euphoria? Alan Greenspan had lowered the federal funds rate by a full percentage point in a rare special meeting. Investors were convinced that this meant that the fed would prevent a recession. Two months later the economy began losing jobs and entered a recession. It didn’t begin adding jobs again until the fall of 2003.

The moral of this story is that financial markets should not be viewed as the embodiments of wisdom about the economy. The big actors in the financial markets are subjects to bouts of fear and panic just like the rest of us. In fact, they might even be more subject to irrational mood swings because they sit around talking to each other all day.

The conventional wisdom in the media was that the economy would collapse in the absence of the bailout. I know of few, if any, economists who shared this view, even among those who supported the bailout. However, the disaster view undoubtedly permeated Wall Street just as the euphoria view permeated Wall Street in January of 2001.

We cannot look at the markets as an independent gauge of the impact of Congress not passing the bailout. The stock markets are reflecting the conventional wisdom in the media, they do not provide an independent assessment of the economy.

So if a few panicking people on Wall Street shouldn’t scare us, do we have anything to worry about? Sadly, yes.

Fed cuts key rate by half-percent: “The funds rate has not been lower since 1958, when Dwight Eisenhower was president.”

White House to banks: stop hoarding money*: ““What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House press secretary Dana Perino said. While there are limits to Washington’s power to affect banks’ behavior, the White House decided it was time to use its bully pulpit.”

Panicking brokers can hurt the stock market, and consequently the value of our investments, but little that they do can not be undone. The Dow was down to 8220 last week; it closed at 8990 yesterday; it could be back above 10,000 tomorrow. However, panicking bureaucrats wield power grossly disproportionate to their numbers. The damage they cause can put towns out of business and starve children. And Bernanke and Paulson aren’t listening to the Midwesterners whose homes are being foreclosed; they’re listening to their former colleagues at Goldman Sachs and Citigroup.

I can’t give you investment advice, but I can tell you what things mean. When a day trader panics, unloading half his portfolio based on what he heard in the men’s room, you can safely ignore him. When the President panics, rushing a bill through Congress and then assuring everyone it’ll take months to see improvement**, bar the door. Call him a liar. Spit when you hear his name.

And for the devil’s sake, don’t vote for any Presidential candidate who supported the bailout.

* First it was “speculators” shorting banks, now it’s “hoarders” stashing money. What’s next – Freemasons poisoning the wells? Jews drinking the blood of Christian babies? What century is this?

** Good thing they hurried, eh?

I’m as ill as the convict that kills for phone time

An update on my various plans for the year:

Fifty Books: I passed the halfway mark on my fifty books in a year schedule in late May. If I keep my current pace I can knock out another 17 by the middle of December, which would make one calendar year.

Investment: I went with Sharebuilder after they got their act together; the low fees turned me on. I now have $x riding on a combination of overseas exchanges, energy industries and inflation-adjusted bonds. My goal now: to ignore anything these ETFs do for the next six months. Being an investor is like being a casino: you make money on the long-run percentages, not on hustling everyone you meet. I avoid the temptation to cut and run by not knowing how my investment is doing.

Writing: Comes and goes. I don’t know much about writing, but I know this for sure: you’re not a writer until you’re writing when it feels bad. If you spend a night, or several nights, in front of a largely blank screen, grimacing at every sentence you type, then you’re a writer. Any jackass can write when they feel creative or clever, just like anyone can work out if they wake up in the morning with a lot of energy.

(I’m not saying that writing is all misery. Misery is a necessary, but not sufficient, condition)

In concrete terms: at about 73,000 words of what will shape up to be a 100,000 word novel. I hit a zone this past Wednesday that should carry me for a while until I need to start making decisions again.

Performing: I like acting more than improv, I’ve realized. People tell me I’m funny and smart and full of good ideas and I say yes, thank you, but none of those traits make you good at improv. Being good at improv – from what little I know on the subject – requires energy and a willingness to throw oneself into the new. I have neither and hate both.

I like having a ‘bit’: a little piece of business or a quirk that I can use to develop a character. I like polishing a scene until I’ve ground it down to a stone. I like practicing different aspects of a character until I find the voice and posture I love. Those are acting skills, not improv skills, and realizing it has made me happier.

Also, improv’s about trust, and my chronic inability to trust anyone I share a stage with doesn’t help.

Cash: Rules everything around me.

the way you love me is frightening

On Friday, I brought Marie up to speed on the joy of Road House. “Do places like this exist in the real world?” she asked. “Yes,” I told her.

I tried to access Vanguard‘s website on Saturday, but discovered that:

  1. You need a separate account for retirement planning and for individual investing. I can see an argument for that, but you figure Vanguard would at least put some links up indicating that. I spent 15 minutes poring over my 401(k) page before realizing that there was no way to just put dollars into other funds.
  2. Customer service doesn’t come in on Saturdays.
  3. All of their FAQ links point back to the home page. Convenient!
So Vanguard lost my business. I tried Sharebuilder next, but it took each page about 90 seconds to load, which strained my already bruised patience. I get easily frustrated with poor website layout.

Grace came over and we had some beers to celebrate her passing the Massachusetts Eye Doctor Legal exam. She can now legally prescribe eyes, as opposed to selling them out of the back of her van.

On Sunday, I auditioned for Gorefest – always a fun time, and I expect big things of Bobby as a director. Then I picked up some provisions for Serpico, Auston and Katie when they came over to game (the World’s Smartest Man jumped inside Serpico’s head; it was fun). After that, I grilled up some greasy organic hot dogs and watched The Bank Job, which is a greasy organic hot dog of a movie: made with an eye toward healthier filling, but still fun and tasty where it counts.

It rained a lot.

a man in my shoes runs the light

Vivid dreams of marriage and work last night. If it weren’t a Friday I’d be worried.

# # #

Went out to lunch with a client on Wednesday and consumed my month’s quota of cheese. Tequenos and queso a la plancha as appetizers; chorizo quesadilla for the entree. I felt irregularly massed for the rest of the afternoon.

# # #

The Red Sox decision to trade a guy who beat up his coworkers sure has attracted a lot of debate!

# # #

I put some serious thought into applying for work as a bouncer yesterday. I could make some extra cash, meet some interesting people. Plus – and this has bothered me for a while – for all my vaunted self-defense training, another human being has never taken a swing at me in anger. I don’t think Palahniuk’s Fight Club glistens with pearls of wisdom, but not knowing everything about yourself until you get in a fight holds true. Especially if you teach other people how to fight once a week.

Then I remembered I don’t have any free time, and the kind of drunken assholes I’d have to associate with, and the whim passed me by.

# # #

Consider the following investment portfolio:

  • 75% in VEU (Vanguard’s All World Except US ETF – an international index fund);
  • 20% in VDE (Vanguard’s Energy Index Fund);
  • 5% in SPDR Barclays Capital TIPS ETF (an inflation-indexed bond fund)
After much deliberation, I will probably buy those this weekend. Don’t you run out and buy them all up just to drive the prices higher, you twenty or so people who read this.

president gas is up for president

Time to talk politics.

First, hitting up the Opposition Party, Radley Balko has a few questions for Barack Obama:

In your autobiography, you admit to using marijuana and cocaine in high school and college. Yet you largely support the federal drug war — a change from several years ago when you said you’d be open to decriminalizing marijuana. Would Barack Obama be where he is today if he had been arrested in college for using drugs? Doesn’t the fact that you and our current president (who has all but admitted to prior drug use) have risen to such high stature suggest that the worst thing about illicit drugs is not the drugs themselves, but what the government will do to you if you’re caught?

He also has some questions on farm subsidies and ethanol, but I like that question best.

Next, picking on the Ruling Party candidate, John McCain has changed another of his long held political beliefs, this one on cigarette taxes:

McCain’s war against the tobacco companies – and this former POW does believe the metaphor is appropriate – stands as a self-acknowledged failure. In 1997, McCain was the moving force behind legislation to expand government powers to regulate tobacco and to levy a tax on cigarettes of more than a dollar per pack. In 1998, the legislation failed, but McCain helped to broker the industry’s $338 billion settlement with state legislators.

McCain developed an antipathy to tobacco lobbyists. He once threw lobbyist Charlie Black out of his Senate office because Black worked for Phillip Morris at that time. (Black now works for McCain as a strategist.)

McCain now opposes sin taxes on cigarettes. He said he worries that Congress would put the additional money into a general revenue pool. “Does anyone here have confidence in Congress?” he asked the crowd. Moderator Paula Zahn was skeptical. Might McCain change his mind if researchers proved that raisng the tobacco tax would help lower smoking rates?

Finally, I have to credit Patri for pointing this out: the Congressional Effect Fund, an equity fund that only buys long on the days Congress sits in session and looks for interest-bearing securities otherwise. Their reasoning: the market reacts spasmodically to Congressional pronouncements – e.g., Congress declares higher fuel standards for cars; car company stocks fall – so you’ll do better to invest when Congress goes on vacation.

I wouldn’t sink my retirement fund into it just yet. The graph looks convincing, sure, but any fool with a degree in Finance can fair a curve with 40 years of past results. However, I respect the logic behind it, so I might pitch a couple bucks their way.

if I had a million dollars

A random sampling of The Joy of Tech tells me it’s not very funny, but this comic specifically made me laugh aloud:

(Also: sorry for getting a Barenaked Ladies song stuck in your head. I don’t normally forgive that behavior in others, and I understand if you don’t forgive me)